SUPPORT FOR AMENDMENTS TO THE FALSE CLAIMS ACT TO PROTECT MUNICIPALITIES AND AFFILIATED PUBLIC ENTITIES

WHEREAS, the United States Senate and House of Representatives have both passed legislation to make the federal False Claims Act (FCA) more stringent, and these bills would apply to local governments and their affiliated public entities, such as public hospitals and school districts; and

WHEREAS, the FCA already allows the federal government to recover punitive treble damages plus additional harsh per claim penalties against recipients of federal funding who violate its provisions, including local governments and their affiliated entities; and

WHEREAS, the FCA also empowers private citizens to bring "whistleblower"/relator lawsuits on behalf of the government and share in the recovery; and

WHEREAS, the FCA was designed to protect taxpayers from private contractors who were overcharging the government during the Civil War, but its use against local government threatens to hurt the taxpayers it was designed to protect; and

WHEREAS, in 2003, the Supreme Court held that even though States are exempt from private lawsuits under the FCA, localities are fully subject to them; and

WHEREAS, this Supreme Court decision left local governments to face potentially crippling or even bankrupting lawsuits under the FCA, unfairly burdening local taxpayers and recipients of services, who ultimately suffer as a result of local government liability; and

WHEREAS, for example, in one FCA case brought against Westchester County, NY, a private relator alleged that the county made false certifications totaling $52 million, but with treble damages, the County is at risk for over $150 million in damages even before any per claim monetary penalties; and

WHEREAS, in another FCA case against Santa Clara County, CA, a private citizen has alleged more than $400 million in false billing by the Department of Children and Family Services, but with treble damages, the County faces potential liability of $1.2 billion even before any per claim penalties; and

WHEREAS, improper billing that occurs as a small component of the complex relationships among local, State and federal governments should certainly be addressed, but it is most often not the result of fraud or malicious behavior, and the federal remedy should not seriously threaten public services and the fiscal stability of local government; and

WHEREAS, in addition to facing the threat of harsh civil penalties and treble damages, local governments also spend years defending against meritless "whistleblower" lawsuits at taxpayer expense; and

WHEREAS, one way that localities have successfully defended against these lawsuits has been by use of the defense that the information on which the relator's complaint is based has already been publicly disclosed, which is known as the "public disclosure defense"; and

WHEREAS, some of the bills that have been circulating in Congress would essentially remove the public disclosure defense for localities; and

WHEREAS, if localities are to continue to be subject to private actions under the FCA, there is a need for the public disclosure defense to not only be maintained for them, but also clarified to state that publication in local and state reports and audits satisfies the defense, as evidenced by a split on this issue in United States Circuit Courts and the fact that the Supreme Court has invited further briefing on the issue; and

WHEREAS, publication in local and state reports and audits should satisfy the public disclosure defense because otherwise the FCA would serve as an undesirable disincentive for public entities to conduct self-audits and share those audits with the public;

NOW, THEREFORE, BE IT RESOLVED, that the U.S. Conference of Mayors urges Congress to amend the False Claims Act to protect the essential public services provided by local governments and their affiliated public entities, including public hospitals, school districts, and other public entities, from the crippling liability of the False Claims Act; and

BE IT FURTHER RESOLVED, that the U.S. Conference of Mayors urges Congress to ideally exempt local governments and their affiliated public entities from relator lawsuits altogether, so that these entities are treated on par with States; and

BE IT FURTHER RESOLVED, that the U.S. Conference of Mayors urges Congress to, at a minimum, either remove or substantially lower the harsh per claim civil penalties and treble damages that can be leveled against local public entities and local taxpayers under the FCA, and maintain the public disclosure defense for local public entities while clarifying that disclosure in state and local audits satisfies the defense; and
BE IT FINALLY RESOLVED, that, in the alternative, if the above measures are not feasible, then other measures be taken that will mitigate the impact of the FCA on local governments and their affiliated public entities.